Threat Protect clinches $49m funding package to finance acquisition of Onwatch

Threat Protect Australia (ASX: TPS) has secured a funding package to the tune of $49 million which it will use to complete the acquisition of security alarm monitoring business, Onwatch.

The Perth-based security solutions business said in a statement today that it would pay about $35 million to purchase Onwatch.

The acquisition will be funded via the new $49 million funding package, which is a mix of debt and equity.

The remaining funds from the funding package will be used to refinance an existing facility with Macquarie as well as provide future funding for acquisition growth.

Acquisition rationale

Onwatch, which has been operational since 2005, currently has a control room in New South Wales focused on direct subscribers, while its Victorian control room predominately services resellers.

To date, the business has 29,000 accounts consisting of 18,000 direct subscribers predominately in the eastern states and 11,000 bureau subscribers.

The move to acquire Onwatch is in line with Threat Protect’s growth strategy aimed at consolidation of monitoring business and represents the company’s largest acquisition to date.

Commenting on the acquisition, Threat Protect managing director Demetrios Pynes said Onwatch offered an important addition of scope to its business as it delivered on its acquisition growth strategy.

“This business will enable us to capitalise on our previous expansion into the east coast and by expanding into Victoria we further diversify our connection base and stable of resellers,” he said.

With the acquisition set to significantly increase its national presence, Threat Protect expects the diversification benefits will flow through to the bottom line, adding in excess of $12 million in annual recurring revenue.

In addition, monitoring revenue will be boosted to $24 million per annum.

Threat Protect, which listed on the ASX in 2015, expects the acquisition to be immediately earnings per share accretive and to positively contribute to its earnings in the second-half of 2019.

The acquisition remains subject to standard closing conditions, including no material adverse change in the financial condition of Onwatch.

Funding terms

To help bankroll the acquisition, Threat Protect has restructured its debt arrangements and has inked a senior secured facility with Soliton for $36 million together with a new $8 million unsecured debt facility with First Samuel.

In addition, Threat Protect will undertake a $5.4 million underwritten rights issue to all shareholders through the issue of about 21.7 million shares at $0.25 each.

The vendors of Onwatch will be issued $2 million shares in Threat Protect on the same terms and conditions as rights issue investors.

In 2018, Threat Protect acquired a Western Australia-based security monitoring client in addition to a major South Australian security firm.

During the six-months to the end of December 2018, Threat Protect incurred a pre-tax loss of $1.58 million.

The company’s shares soared on today’s news, increasing 22.2% to $0.22.